India’s gross debt may reach 87.6 per cent of GDP in FY21

As the coronavirus pandemic brings the economy to a grinding halt, raising the need for the higher government spending, India’s gross debt is likely to touch Rs170 lakh crore, which is 87.6 per cent of the GDP, according to the SBI Ecowrap.

The report also said that the higher debt amount will shift the FRBM target of combined debt to 60 per cent of GDP by FY23 by seven years with the target now seen achievable in FY30 only.

Higher level of borrowing this fiscal is likely to increase gross debt further to around Rs170 lakh crore or 87.6 per cent of GDP. Within this, external debt is estimated to increase to Rs6.8 lakh crore (3.5 per cent of GDP). Of the remaining domestic debt, component of State’s debt is expected at 27 per cent of GDP,” it said.

In the financial year 2019-20, India’s debt stood at Rs146.9 lakh crore, 72.2 per cent of GDP, increasing from Rs 58.8 lakh crore in FY12.

“India’s debt-to-GDP ratio has increased gradually from Rs 58.8 lakh crore (67.4 per cent of GDP) in FY12 to Rs 146.9 lakh crore (72.2 per cent of GDP) in FY20,” it said.

According to the report, external debt is estimated to increase to Rs 6.8 lakh crore (3.5 per cent of GDP) in the expected gross debt for FY21. “Of the remaining domestic debt, component of state’s debt is expected at 27 per cent of GDP. Interestingly, the GDP collapse is pushing up the debt-to-GDP ratio by at least 4 per cent, implying that growth rather than continued fiscal conservatism is the only mantra to get us back on track,” it said.

“We reiterate the current thinking of rating downgrade in policy circles is a false negative as India’s rating is likely to face a litmus test of downgrade in FY21, depending on what we have done to bring growth back to track,” the SBI Ecowrap report said.

This higher debt amount will also lead to shifting of the FRBM target of combined debt to 60 per cent of GDP by FY23 by 7 years with the target now seem achievable in FY30 only.

“The moot point is the sustainability of the debt. The current foreign exchange reserves are sufficient to meet any external debt obligations. On the internal debt, since most debt is domestically owned, its servicing is not an issue,” it said.

“In the current situation, our nominal GDP growth is likely to contract significantly and based on this our interest-growth differential will turn positive in FY21, thus raising serious questions on debt sustainability,” the SBI Ecowrap report said.

Meanwhile the ongoing pandemic has hit every sector of the Indian economy hard and the retail trade in the country has lost about Rs 15.5 lakh crore in the past 100 days.

In a statement, the Confederation of All India Traders (CAIT) said that the traders across the country are highly depressed because of very minimal footfall of the consumers, considerable absence of employees, facing the highest financial crunch and yet have to meet several financial obligations.

“No support policy from the Central or state government is yet another crucial factor which is haunting the traders,” it said.

Indo-Asian News Service